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The Ministry of Justice said the discount rate used to calculate lump sum payouts in severe damages claims is to be lowered from 2.5% to minus 0.75%.

This is the calculation used to work out how much compensation is fair to offer someone with a permanent injury - such as a broken back that leaves them wheelchair bound for the rest of their life.

In effect it means you get more money each year - based on average life expectancy - because the money you get won't produce the interest it used to when the old limit was set in 2001.

But the Association of British Insurers (ABI) described the decision "crazy", in a move that could increase costs for insurers by up to £3billion with as many as 36 million drivers paying the price, market research firm Consumer Intelligence warned.

Only the worst-injured will be affected, but the change in how compensation is calculated means they could get MILLIONS more in payouts as a result.

Insurance companies have seen their share prices plummet following the ruling.

And insurers have warned rising prices and changing risks could could force young motorists off the roads entirely.

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Huw Evans, director-general of the Association of British Insurers (ABI), said: "Claims costs will soar, making it inevitable that there will be an increase in motor and liability premiums for millions of drivers and businesses across the UK.

"We estimate that up to 36 million individual and business motor insurance policies could be affected in order to over-compensate a few thousand claimants a year."

PWC general insurance chief Mohammad Khan said policies could rocket if insurers pass on the higher costs. He said: “This announcement will have a significant adverse impact on motor insurance prices that drivers pay and also commercial insurance rates paid by small businesses.

“As a direct result of this change, we anticipate an increase of £50 to £75 on an average comprehensive motor insurance policy.

“But there could be higher increases for young and older drivers – potentially up to £1,000 for younger 18-to-22 year-old drivers – and a rise of up to £300 for older over 65 year-old drivers.”